3 Stocks With Revenue Growth Greater Than Earnings Growth

The June issue of Money Magazine makes the argument that if the current recovery is going to last, companies need to start increasing sales rather than just earnings. I couldn't agree more. To find some, I did a stock screen looking for those companies whose most recent annual sales growth is higher than its earnings growth. These will truly shine in a robust economy.

Small Cap -Buffalo Wild Wings (Nasdaq:BWLD)The restaurant operator known for its chicken wings has hit a speed bump in 2009. Its stock is down 9% after averaging roughly 20% in each of the last five years. Clearly, its stock price got out of hand. Yet I have to wonder if investors didn't overreact to its first-quarter report that delivered flat same-store sales, 16% revenue growth and a 23% increase in earnings per share. It was more likely the comment from CEO Sally Smith that it was going to have a tough time meeting its goal of increasing earnings by 20% in 2010. She didn't say it couldn't, but investors took that as gospel, dropping the stock 17% in one day of trading. It continued to drop throughout May. Its current valuation is more attractive than McDonald's (NYSE:MCD), Yum Brands (NYSE:YUM) and the other big players in the industry. I'd be looking to buy once the markets stabilize.

Mid Cap -J.M. Smucker (NYSE:SJM)Smucker's announces fourth quarter results June 17. It should be another upside surprise. Analysts expect revenues for the year ended April 30 to be $4.58 billion, which would be a 21.9% increase year-over-year. In terms of earnings, the consensus of 11 analysts is $4.17 a share or a 10.6% increase. The Folgers acquisition continues to pay dividends. On May 18, the company announced it was raising coffee prices in the U.S. by 4% because of increased green coffee costs. A price increase usually signals management confidence in a brand. Analysts currently call for 4% revenue growth in 2011. That's pretty conservative especially after increasing it by 21% or so in 2010. The Smuckers story continues to get better and the $1.60 annual dividend makes a long-term hold easy to digest.

Large Cap -Lorillard (NYSE:LO)In 2009, the cigarette maker increased revenues by 24% to $5.2 billion. However, it's an optical illusion. Most of the gain came in the form of higher federal excise taxes, which went up April 1, 2009. Without the taxes, revenues really only grew by 5.6% to $3.69 billion. I'm not a fan of cigarette companies, but it's hard to ignore their stable profits and attractive dividends. In 2009, LO's earnings per diluted share grew 11.8% to $5.76, paying out two-thirds as dividends. At current prices, Lorillard yields 5.2%. With $1.38 billion in cash and half that in debt, it's a great play if you don't have a problem with the nature of its business.

Bottom LineAll three of these stocks should do well in the coming months as the economy continues to improve, and all will generate attractive earnings from whatever sales growth they do achieve. That's all you can ask for. (To learn more, see Steady Growth Stocks Win The Race.)